Wireless giant Qualcomm (QCOM) released its fiscal first-quarter last week, reporting better-than-feared earnings that were driven partly by better cost management and a new and more favorable interim licensing deal with Huawei. For Q2, the company has guided for adjusted EPS of between $0.65 to $0.75 per share, with revenues projected at between $4.4 billion and $5.2 billion.
However, the story hinges on the numerous court cases involving QCOM, particularly the FTC dispute challenging their licensing practice, which is awaiting a decision. The legal proceedings present a wide range of outcomes that will materially impact the trajectory of the company’s licensing business going forward.
Cowen analyst Matthew Ramsay noted, “It admittedly feels a bit like a living room conversation about which sitcom to watch next when the elephant in the room is sitting right there on the sofa. With closing arguments on the FTC trial just complete, shares are likely to remain range bound despite smartphone macro challenges offset by likely stronger 5G chipset prices and solid expense reduction execution. Our positive view on Qualcomm’s R&D and IP value remains steadfast; but alas, we wait on courts and judges.”
UBS analyst Tim Arcuri added, “The FTC case has created a bit of a quagmire for the licensing business and it seems unlikely that AAPL would settle before some outcome from this case is more apparent (likely another 4-6 wks, in our view). All is by no means lost though as we believe AAPL really wants and needs QCOM’s 5G modem, lest it use a clearly inferior INTC version in phones this Fall selling for >$1000. Time is also of the essence for AAPL on 5G, so it may have to acquiesce to QCOM one way or another. Huawei is panning out about as we expected, so we still come down with a base-case EPS of $4.21 which simply adds back ~$5/phone license from AAPL but includes no past owed royalties or purchases of any chips from QCOM.”
While Ramsay ranks QCOM stock an Outperform with $70 price target, Arcuri remains sidelined with a Neutral rating and a $55 price target. Between the two, Arcuri is ranked higher based on his performance. (To watch Arcuri’s track record, click here)
What do other analysts say about the mobile chip maker? It’s almost totally split. TipRanks analytics shows out of 19 analyst, 9 are bullish on QCOM, while 10 are sidelined. The consensus price target of $63.21 shows a potential upside of 24%. (See QCOM’s price targets and analyst ratings on TipRanks)